Apple CEO in a tight spot

Tom Foremski, SPECIAL TO THE EXAMINER

Published 4:00 am, Sunday, February 4, 1996

AS GILBERT Amelio, Apple's new chairman and CEO, takes on what many consider to be the most difficult job in the computer industry, thousands of Apple employees in the Bay Area are bracing themselves for a new round of job cuts.

Amelio's task is to reverse the declining fortunes of the third largest U.S. PC maker and rescue a venerable American cultural icon and one of Silicon Valley's most famous companies. His immediate actions will be to stem Apple's losses - reportedly $69 million in the fourth quarter alone - clear out almost $2 billion of unsold computers, and refocus the company on a clear growth strategy.

"A new round of job cuts is almost inevitable," says Jon Swartz, business editor at MacWeek. "Apple has always found it easier to cut costs by cutting people."

Another 1,000 to 1,500 job cuts are expected, in addition to the 1,300 layoffs Cupertino-based Apple Computer Inc. announced recently - roughly 17 percent of the work force. And as Amelio takes further steps on the road to recovery, he is likely to cut research and development projects, possibly sell Apple's Newton product line, and dump the moribund eWorld on-line service - both propducts that didn't live up to expectations.

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"Amelio has a reputation for being dictatorial and decisive, and Apple certainly needs somebody like that right now to make those hard decisions," adds Swartz.

"What we don't know yet, is if he is a visionary, able to lead Apple and invest for the future."

Amelio's appointment signals the apparent end of Apple's efforts to find a buyer and its reputed merger talks with Sun Microsystems Inc. This is a major relief for many of Apple's 22 million customers, who feared that a new owner might falter in its long-term commitment to the Macintosh platform.

Apple problems are not unknown to Amelio, 52, who has served on Apple's board of directors since 1994. With A.C

"Mike" Markkula - who helped found Apple 19 years ago and is the silent power behind the throne and Apple's largest single shareholder - stepping down from chairman to vice chairman, Amelio now has a free hand to make sweeping changes.

Shadowy presence

But Markkula's influence is still likely to shadow Amelio's decisions. "If Markkula had walked away from Apple, that would have been one thing. But with him staying on as vice chairman, he will still be involved in running the company," said one Apple insider.

Amelio, who had been chief executive of the National Semiconductor Corp., faces the difficult task of not only rebuilding Apple's business but also of tackling Apple's corporate culture, which has been a key obstacle to previous senior management's attempts at making lasting changes.

Former Apple CEO John Sculley - ousted in 1993 and replaced by Michael Spindler, himself dumped last week in favor of Amelio - spoke about the problems he faced leading Apple during an address in 1994. "It's a very overpowering thing to be inside a company that's as rich with talent, technology and good ideas as Apple has always been," Sculley said. "Yet, at the same time, Apple had an environment that was unbending and unwilling to change from its founding principles. And I was unsuccessful in trying to change it. Maybe someone else can be, but I am not convinced."

Sculley referred to the Apple corporate culture as being closer to that of a cult, but that once people left the company, "they were no longer driven by the cultism which drove them at Apple."

When Spindler took over as Apple's CEO, he was also very aware of problems posed by the company's corporate culture. He made the very telling statement that "Apple is a culture and not a cult."

In some ways, that same style of thinking has been transferred to Apple customers, many of whom enjoy a reputation for being fanatical loyalists, convinced that the Macintosh provides the best computer systems. This is a clear advantage for Amelio, who can count on the fierce loyalty of many Macintosh users to continue buying bigger and better computers.

Amelio must also try to improve Apple's communications, about its intentions and about the advantages of its technology.

"I've said this to Spindler several times," says Pieter Hartsook, editor of Hartsook Letter, a Macintosh market research newsletter. "You've got to be able to clearly say why you should buy a Macintosh. Apple has always had a problem in marketing its technology."

Swartz agrees. "If there is one thing Amelio has to do, it's improve communications. This has been one of Apple's major weaknesses, that it can't get its message out. The marketing department doesn't know what the customers want."

Amelio is under pressure from shareholders to bring the company back to profitability and increase the battered share price, which reached a 52-week low in Nasdaq trading last Tuesday before rebounding to 29" at close Friday on the news of Spindler's ouster. In better times, the stock had been trading in the mid-40s.

Angry shareholders

At an Apple shareholders' meeting Jan. 23, Apple's board of directors was surprised with the angry reaction by shareholders who clearly blamed senior management for the company's dire straits.

Spindler bet his job on the fourth-quarter sales results, traditionally Apple's strongest season. Spindler had predicted that Apple customers would snap up millions of low-end Macintosh models when, instead, they wanted the more powerful mid- and top-end models, which Apple could not provide in sufficient quantities.

It's a mistake that other computer companies, such as Packard Bell and Hewlett-Packard, also made, finding themselves with bloated inventories of low-end PCs while customers flocked to high-end Pentium systems.

Amelio will clearly move to bolster Apple's struggling share price by concentrating on more profitable Macintosh models in key markets such as desktop publishing, multimedia development and education. But this could come at the expense of lower market share as Apple cuts out some low-end models.

Amelio will have to walk the fine line of both expanding market share and increasing profits - something which Apple has not managed to do in the recent past. This problem could be made easier with the introduction later this year of PowerPC Platform-based computers from a wide number of computer companies such as IBM, Motorola and Power Computing.

These computers are designed to run most of the major operating systems, including the Mac OS. Apple recently demonstrated a new version of the Mac OS running on a PowerPC Platform-based IBM computer at the Demo 96 conference last week. Observers said that the system seemed bug-free and offered impressive performance.

If the PowerPC Platform takes off, it will help solve Amelio's dilemma, and expand the number of Macintosh users while at the same time allow Apple to concentrate on producing more powerful and more profitable computers.&lt;

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